Our Future State: Recap of the Mishcon Academy Digital Session

On the 15th July, the Mishcon Academy in collaboration with the Rem.n London Team held a Digital Board Panel conversation: Remuneration Governance in a Post-Pandemic World

I had the honour of chairing this panel of distinguished speakers:

• Caroline Ross - Chief People Officer, Flutter Entertainment plc
• Stuart Sinclair - Remuneration Committee Chair, Lloyds Banking Group plc
• Rory Godson - CEO, Powerscourt
• Stephen Diosi - Partner, Mishcon de Reya LLP

The thrust of the discussion focused on the ways in which companies emerging from the pandemic would like to be remembered for doing the “right thing.” Remuneration committee chairs will especially want to ensure their decisions about executive pay will not have unintended consequences or long-term repercussions further down the road. We reviewed the latest market developments on executive pay and how companies have adapted their remuneration policies to the prevailing market conditions.

Covering a lot of ground in just an hour, the questions we posed to the panel were:

1. Will executive pay be even more of a flashpoint for inequality as we come out of this crisis?
2. Discretion is the better part of valour—or is it? Investors are in rebellious mood so far in 2020. What actions can we take now to avoid a revolt? And is it better to hold off making grants/setting targets for those that haven’t done so already or should the remco go ahead and apply discretion later?
3. What will the new normal look like on the other side of the pandemic? Will companies fall back into old behaviours, such as happened after the 2008 crisis, or will their words of solidarity translate into real action and usher in a new era for executive pay?
4. Has the time come to simplify executive pay or in other words are long-term incentive plans dead?
5. There are winners and losers, and the reputational stakes are high no matter which category your organisation falls into. How do you avoid the public embarrassment of a windfall gain when set against the plight of millions who have lost their livelihoods?
6. What are the new executive skills that will be needed for a post-pandemic era—and therefore relevant for remuneration incentive plans?
7. Will the focus on ESG move to emphasise the “S” or the “E” and how will this translate into incentive targets that can be measured?

While the discussions were under Chatham House Rules, so publication is restricted, there were some key points raised that I can share.

• COVID-19 has left the general public, not just investors, tied into the issues surrounding executive pay. Most likely, therefore, we can expect to hear far more vociferous and active voices on this topic in 2021.
• While the Governance Code is clear and executives still want goals to achieve, the fact is that “defining success” in 2020 is a moving target.
• There is definitely a “new normal” that includes simplification, long holdings, multiple testing points, greater use of discretion, downward pressure on pay quantum, far more by way of explanations to stakeholders, and remuneration advisors who are expected to be more forensic.
• Work will never be the same.
• Long-term incentives are unpopular, but they are far from dead.
• As in wartime, leadership must portray the upside of winning: the gain is worth the pain. Similarly, as in wartime, the pain must be felt to be greatest at the senior levels.
• ESG is about sustainability, both environmental and social. It is here to stay, and we will see far, far more focus on this in the future.